The Uniform Commercial Code governs the sale of "goods," as
distinguished from the sale of services, which is governed by other
statutory or case law. Under the UCC, a good is any "tangible
thing" that is "moveable." In addition to manufactured products,
goods include -- among other things -- growing crops and timber,
the unborn young of animals, and minerals. However, courts
across the United States are split on whether electricity
constitutes a good under the UCC.
Courts holding that electricity is a good tend to use a simple
analysis of the definition of "goods" under the UCC. The UCC
defines "goods" as "all things … which are movable at the time of
identification to the contract for sale." Parsing this definition,
these courts find electricity to be a "thing movable" which is
identifiable when measured by the customer's electric meter.
Courts on the other side of the divide generally hold that the
provision of electricity is a service, not the sale of a good.
Historically, electricity has been manufactured or generated as
needed, transmitted over high voltage lines to population centers,
and then distributed over lower voltage lines to individual
customers. All of these functions were often performed by a single
vertically integrated electric utility company. Courts holding that
that electricity is a service tend to focus on the transmission and
distribution of electricity, i.e., the delivery of the electricity
over wires, instead of the electricity itself.
The applicability of the UCC could significantly impact or even
determine the outcome of a case involving the sale of electricity.
For example, the UCC imposes a four-year statute of limitations on
actions, as compared to Massachusetts' general contract and tort
statutes of limitation, which are six years and three years,
respectively. Other significant differences between the UCC and the
otherwise applicable law include the warranties of merchantability
and fitness for a particular purpose; and the doctrine of adequate
assurances, which allows an insecure party, whether buyer or
seller, to demand adequate assurances of performance from the other
Massachusetts appellate courts have yet to address directly
whether electricity is a good under the UCC. A 1995 Massachusetts
Superior Court case ruled that electricity is not a good on policy
grounds. The court was "troubled by the sweeping implications that
this analysis may have on public utilities." It left to the
legislature "the decision to expose public utilities to liability
for their 'products.'"
Electric utility companies in Massachusetts at that time were
vertically integrated: they engaged not only in the transmission
and distribution of electricity but also its generation and its
sale. The sale of electricity and its delivery to the customer were
bundled and provided as monopoly services at rates regulated by the
Department of Public Utilities (DPU).
Two years later, however, the Massachusetts legislature
deregulated the sale of electricity. Electric companies
subsequently divested themselves of their generation facilities and
became distribution (or "wires-only") companies. A customer can now
choose to purchase electricity from a competitive supplier at rates
that are not regulated by the DPU. Distribution companies continue
to provide transmission and distribution of electricity. They also
act as default suppliers, selling electricity to consumers who do
not choose a competitive supplier. A consumer's electric bill is
itemized and includes separate charges for transmission and
distribution services and electric energy usage.
In 2009, the Massachusetts Appeals Court held that electricity
is a "personal chattel" (or personal moveable property) which may
be subject to larceny because it may be stored and conveyed.
Commonwealth v. Catalano, 74 Mass. App. Ct. 580, 584
(2009). The Appeals Court also found that the quantity of
electricity consumption is measurable and its value may be subject
to testimony and exhibits. This case supports a finding that
electricity is a "thing which is moveable." After all electricity
moves from the generation facilities where it is produced over
transmission and distribution lines to the customer's meter. The
court's holding that electricity is measureable also supports a
finding that electricity can be identified at the meter at the time
Even more recently, in 2010, the bankruptcy court for the
District of Massachusetts held that electricity is a good under the
UCC. In re Erving Industries, Inc., 432 B.R. 350, 370
(Bankr. D. Mass. 2010). Citing theCatalano case as well as
cases from other jurisdictions, the court held that electricity is
both "property" and a "product" and easily meets the "movability"
requirement, which distinguishes goods from real property. The
court identified the issue under the UCC as whether the electricity
is movable at the time it is identified to the contract, i.e., when
it is measured by the meter. Some courts have concluded that
electricity is consumed at the time it is identified by the meter
and is therefore no longer movable. However, the Massachusetts
bankruptcy court held that that electricity does not cease to exist
when it reaches the meter, but passes through it and remains
movable through the customer's wiring until it is ultimately put to
use. Therefore the Massachusetts bankruptcy court held that
electricity is a good under the UCC.
The debtor in Erving Industriesargued that the
electricity supplier did not sell anything but merely provided a
service. The court emphasized that the electricity supplier was a
competitive supplier and not a provider of monopoly services. As
such it was not a "utility" and was not subject to government
regulation. Also, the electricity supplier did not generate the
electricity but resold electricity it purchased from others.
As a result of the regulatory structure in Massachusetts,
consumers have "retail choice" such as the option of purchasing
electricity from competitive suppliers. In fact, even if a
Massachusetts consumer opts to purchase electricity directly from
the distribution company, the electricity supplied will probably be
purchased by the electric company from a competitive supplier.
Distribution companies own few, if any, generating facilities. They
purchase most of the electricity they sell and distribute to
Given the deregulation of the electric industry in
Massachusetts, and the current state of the law, it can be argued
that the UCC should apply to the sale of electricity, at least in
cases where Massachusetts law governs.
Until the appellate courts address whether electricity is a good
or a service, however, parties cannot be certain whether the UCC
will apply. Attorneys representing buyers and sellers of
electricity in the meantime should be prepared to argue whether
electricity is a good or a service. Likewise, until the courts
definitively determine whether the UCC applies to sales of
electricity, parties negotiating electricity sales contracts should
consider including provisions which address explicitly issues such
as statute of limitations, warranties, adequate assurance and other
differences between the UCC and the otherwise applicable law.
ROBERT M. GRANGER is a managing
shareholder with Ferriter Scobbo & Rodophele PC in Boston. He
advises business and government clients in the boardroom and
represents them in the courtroom. His practice focuses on regulated
industries including energy and insurance.